Liberty Media’s John Malone: Video Will Be Everywhere, but Someone’s Got to Pay for It

Remember when the notion of 500 TV channels was a new idea, and a big one? John Malone, chairman of Liberty Media (LINTA), does. He’s the one who floated it, way back in 1992, when he was running TCI, which at the time was the biggest and most powerful player in the cable business. Since then, Malone has moved in and out of several companies, often via dizzyingly complicated investment structures, but has always stayed connected to TV in some form. Which makes him a timely guest to have on the D: All Things Digital stage this year, when convergence–the true marriage of TV and the Internet–has become a reality and we move from 500 channels to an infinite number.

Session Highlights

Live Blog

Walt Mossberg introduces Malone and his history and portfolio. Question: In five, ten years, are people going to be using the word “television”?

Malone: In five years old guys like me will still call it television, but it will come from anywhere, in many formats, via many distribution channels. Anything anywhere in increasing quality and quantity and decreasing costs. That’s the trend.

Walt: We’re used to the idea of shows, linear programming, on television sets. But younger people aren’t spending money on cable or satellite. The first thing they have to have is Internet, and they watch video on laptops. That’s a big change.

Malone: From a business perspective, the challenge for those of us in the distribution business is to deliver over multiple channels. So cable providers are trying to increase speed, add voice, add playback options, experimenting with Slingbox, trying to evolve with digital technologies. If you’re prudent as an investor, you’re trying to play all of these fields. The idea of programming linear channels has already broken down. By and large, most broadcasters don’t view broadcast as core anymore. They’re all moving to cable networks and their dual income streams (ads plus subscription). All of these media need to evolve as technology evolves.

Walt: The music business started falling apart when the album fell apart–unbundling. What’s the impact of that on video? Malone: For starters, things like live sports that can’t be watched on delay, become more important. “The big event, that’s heavily promoted, and can attract a big audience.” The economic bets are increasingly going to the big event, and it’s stealing the oxygen from the room, relative to tonnage. That’s having a big effect on other broadcast programming.

Walt: So starting something like a new “Seinfeld” is that much harder. Malone: Yes, because audience is ever-fragmented, and it’s harder to get their attention. First law of physics: Big bubbles get bigger and smaller ones disappear.

Walt: So who are the big bubbles? Malone: Sports. DirectTV just paid big dollars for its NFL contract. In terms of people’s appetites to watch entertainment on HD screens, it continues to grow.

Walt points out that MLB.com is really good. Malone. “Thank you. We own the Braves.”

Walt: “You own a lot of things.” Malone agrees.

Walt: Why doesn’t anyone offer me, through satellite or cable, a “real” Internet experience when it comes to TV, where I can get what I want, on demand? The DVRs they offer don’t cut it. Why can’t I buy a service where I turn it on and it’s like the Internet, where I get whatever I want? So it’s all Hulu, all the time, but with everybody fed into it, and with all the content?

Malone: “It’s this nasty little thing called bandwidth,” and no one has the capacity to give everyone everything at the same time. Yet. “It’s getting there.” Comcast (CMCSA) advertises thousands of simultaneous titles. Where the technology has been most heavily invested in, you’re starting to get a taste of it.

Walt: But you think that will happen? What happens to traditional programmers in New York or LA?

Malone: Monetizing is hard. Advertising may not do it. Hulu has ads but they’re not significant. How do you spend enough money to produce high-quality programming with advertising?

Walt: But you figured out how to get people to pay for content, when you pioneered cable TV.

Malone: Yes. It was a huge, titanic fight. We needed a law change to sell what had been free TV. So we bundled the “transport” charge with the content. That was the key.

Malone starts explaining the history of cable TV, from broadcast to Turner’s early satellite stuff to HBO. [If you’re interested, I think this is a well-written (and opinionated) history]. Back to the future: The concern is that if it’s off the Internet, then psychologically, it’s free. That’s a big jump.

Malone: Here’s two efforts where I tried to get people to pay for content. I helped created @Home. The initial suggestion was to differentiate high speed vs. low speed by charging for some content. We proposed this to Gerry Levin at Time Warner. Couldn’t get it done, and we sold to AT&T, and the rest is history. Second: We suggested to broadcasters that they shouldn’t give away HD when that came in, but to bundle it into subscriptions. That didn’t go over either. Retransmission consent is changing some of that. Don’t know if that will be enough to save CBS (CBS).

Malone: We got people to pay for stuff by tying communication with content. If you can introduce incrementally, that say, 4G wireless service comes with these three things that you can only get with that, maybe that can work. I think it’s a very interesting watershed.

Malone points out that Liberty’s Discovery shows are not available on the Web–“they only tease it.” That’s very deliberate. There are other models of getting people to pay for stuff online–Bloomberg can do it by charging a very small audience a lot of money. People are OK paying for things they’re used to paying for. People will pay for access to NFL games on TV, and I think they’ll pay on the Web.

Malone: The question you have to ask yourself: Is an aggregator going to do that? Or as a consumer, will I have to have lots of relationships with lots of people?

Malone: You would love to be the aggregator. Cable would love to be. Hulu would love to be. Walt: Will you be in that competition? Malone: “If I live long enough, sure.”

Malone: We tried this with Vongo–Web movie distribution–not very successfully. We couldn’t get a broad enough control of rights. Movie rights are split between Showtime, HBO and us. No one has been able to get enough access to make that work yet.

Walt: What’s up this concept of “windowing”? Why can’t we get rid of this? Why can’t I watch the new Star Trek movie on my TV right now? I’d pay for it?

Malone: One reason is fear of piracy. Also the recognition that the appetite for the public in terms of willingness to pay goes through these windows.

Walt: I know the reasons for it historically, but it makes no sense today.

Malone: “A lot of it has to do with training the public, and the public doesn’t change its behavior quickly.” Devices are great, and they’re sexy. But systems and architectures and mindsets take time to change.

Q&A What is the future of local TV broadcasting? Malone: I asked Rupert Murdoch (old partner/rival) the same question today about local newspapers. My knee-jerk reaction was that the government has done it. Of course my reaction is to blame lots of things on the government. They should have allowed papers and TV stations to combine. Clearly there’s a need for local news and a demand for local advertising. The question is combining these in a way that’s economically viable. We’re studying that in a couple of local markets. More broadly, what’s the role of localism? Will all advertising go national? Will all content go national? I really don’t have an answer. Barry Diller has been trying to build out CitySearch for a long time, and it’s a real struggle for him. He’s about break-even on it, I don’t want to give away any secrets (again, Diller is a former partner/rival). I know that at Discovery, we would not produce anything that didn’t have global appeal, and couldn’t be translated into 87 languages.

Question: If Apple released an HD TV next month with the ability to create iPhone-like apps for people like Discovery, would that be appealing to you? Malone: It’s a chicken-and-egg question. A question of scale. How do you dare risk alienating your existing distribution infrastructure? That’s the problem with Zulu–I mean Hulu. It’s very experimental.

Malone: Cable industry has traditionally been too close, and too reliant on proprietary technology, and that’s been a problem. One of the reasons you’ve seen a digital explosion has been open-technology platforms.

Question: What about an iTunes-style unbundling for video? Malone: Yup, what we call a la carte. The reality is that 99 percent of channels are very inexpensive for the distributor. They’re basically giveaways. That’s the way the business evolved. Advertising is important because access to all those people is important for advertisers. Walt: Why can’t I buy the channels I want? Malone: The money you would save would be de minimus. Also, the very expensive services, like ESPN, have way too much leverage. No distributor wants to live without ESPN because they might risk losing 15 to 20 percent of their base.

Walt: So blame Bob Iger? Malone: The guys who don’t have leverage don’t charge very much. The ones who do have leverage won’t let you go a la carte.

A note about our coverage: This liveblog is not an official transcript of the conversation that occurred onstage. Rather, it is a compilation of quotes, paraphrased statements and ad-lib observations written and posted to the Web as quickly as we were able. It was not intended as a transcript and should not be interpreted as one.

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